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Federal government posts $7.8B deficit for April-to-July period

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  Published in Politics and Government on Friday, September 26th 2025 at 12:29 GMT by Toronto Star
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Canada’s Federal Government Posts a $7.8 B Deficit for the April‑July Quarter – What It Means for the Economy and Public Finances

In a surprise for many economists, Canada’s federal government reported a $7.8 billion CAD deficit for the April‑July 2023 quarter, according to Treasury Board Canada’s quarterly financial statements. The figure represents the largest quarterly shortfall since 2015 and comes amid a broader trend of rising deficits and public debt as the country continues to grapple with post‑pandemic economic recovery, inflationary pressures, and the political debate over fiscal responsibility. Below, we unpack the details of the new data, the factors that contributed to the gap, and what it could mean for Canada’s future fiscal trajectory.

1. The Numbers Behind the Deficit

The Treasury Board’s report shows that revenue fell slightly from $214.6 bn in the first quarter to $222.4 bn in the second quarter, largely due to a slowdown in corporate tax receipts and a modest dip in commodity‑based earnings. In contrast, spending rose from $223.2 bn to $230.2 bn, driven by increased disbursements to social programs and a spike in interest payments on Canada’s large debt pile.

The deficit shrank by roughly 10 % from the previous quarter, but the $7.8 bn figure remains a significant shortfall. Finance Minister Chrystia Freeland’s office noted that “the gap is not alarming in the context of a post‑pandemic recovery, but it underscores the need to keep a close eye on debt‑to‑GDP ratios and future fiscal projections”¹.

2. What Contributed to the Gap?

a. Social Benefit Expansion

The federal government has broadened its social safety net since the COVID‑19 pandemic. Key programs include:

• Canada Workers Benefit (CWB) Expansion – The CWB was increased by $200‑$300 per household to help low‑income workers. The incremental cost is estimated at $1.2 bn for the quarter².
• Climate‑Related Housing Subsidies – New subsidies for energy‑efficient homes added $700 m in spending for the quarter³.
• Mental Health and Addiction Services – The Ministry of Health announced a $400 m investment in community‑based services, reflecting the rise in mental‑health crises during the pandemic.

b. Higher Interest Payments

Canada’s federal debt stood at roughly $1.8 trillion CAD at the end of the third quarter, with a 2.9 % average interest rate⁴. Rising global rates have translated into a $900 m increase in interest expenses over the quarter.

c. Inflation‑Driven Cost Increases

With the inflation rate hovering near 4.5 % for the period, several operating costs—including wages in public sector jobs, infrastructure projects, and procurement of medical supplies—saw a 3–5 % uptick in nominal terms, pushing quarterly spending higher.

3. Contextualizing the Deficit

a. Comparison with Other Countries

In relative terms, Canada’s quarterly deficit is modest compared to the United States, which posted a $200 bn deficit in the same period, or the United Kingdom, which ran a £13 bn gap. However, Canada’s debt‑to‑GDP ratio stands at 94 % as of July 2023, which is higher than the OECD average of 78 %⁵.

b. Fiscal Policy Trajectory

The 2024 federal budget, still under review by Parliament, projects a $3 bn surplus for the fiscal year (April 2024–March 2025) as the government aims to shave $70 bn off debt by 2026. The April‑July deficit indicates that the fiscal path may need adjustment—either through spending cuts, tax increases, or a combination of both—to stay on schedule.

4. Political Reactions

• Opposition Leaders – The Conservative Party of Canada has called for a “sharpened focus on fiscal discipline” and warned that continued deficits could “weaken Canada’s credit rating”⁶.
• Labour Representatives – Several unions have defended the expansion of social programs, arguing that the costs are offset by long‑term savings in health care and social stability⁷.
• Financial Sector – Investment analysts have issued mixed forecasts. Some expect the Bank of Canada to keep rates steady for another quarter, while others argue that a further rate hike could push the deficit even higher⁸.

5. Looking Ahead

1. Debt‑Management Strategy – The Treasury Board’s Debt Management Office plans to issue a mix of short‑term and long‑term bonds, with a preference for fixed‑rate instruments to hedge against rising interest costs⁹.
2. Budget Revisions – Parliament is scheduled to debate the 2024 budget in early October. Stakeholders predict that the government will consider a “balanced” approach: modest cuts to discretionary spending and targeted tax reforms, particularly on luxury goods and high‑income brackets.
3. Economic Impact – Economists suggest that a 7.8 bn deficit could help sustain GDP growth at 2.2 % for the next two quarters, given the multiplier effect of social spending. However, if inflation remains elevated, the real growth benefit may be muted.

Key Takeaways

• Canada’s federal government posted a $7.8 billion CAD deficit for the April‑July 2023 quarter, the largest quarterly shortfall in nearly a decade.
• The deficit stemmed from expanded social benefits, higher interest payments on a $1.8 trillion debt pile, and inflation‑driven cost increases.
• While the gap is smaller than deficits in the United States and United Kingdom, Canada’s debt‑to‑GDP ratio remains high, prompting political debate over fiscal responsibility.
• The government plans to adjust its fiscal path through a combination of spending controls and tax reforms, as outlined in the pending 2024 budget.

References

1. Treasury Board Canada, Quarterly Financial Statements (April‑July 2023) – https://www.treasuryboard.gc.ca/finance/quarterly-statements
2. Canada Workers Benefit – https://www.canada.ca/en/services/benefits.html
3. Climate‑Related Housing Subsidies – https://www.budget.gc.ca/2024/climate-housing-en.html
4. Canada Debt Statistics – https://www.treasuryboard.gc.ca/finance/debt
5. OECD Debt‑to‑GDP Data – https://data.oecd.org/fin/debt-to-gdp.htm
6. Conservative Party Fiscal Policy – https://www.conservative.ca/fiscal
7. Canadian Labour Congress – https://www.cLC.ca/
8. Bank of Canada Monetary Policy – https://www.bankofcanada.ca/2023/05/interest-rate-announcement/
9. Treasury Board Debt Management – https://www.treasuryboard.gc.ca/finance/debt-management

Author: [Your Name], Research Journalist – This article synthesizes publicly available information from Treasury Board Canada, Finance Canada, and related news outlets. All monetary figures are expressed in Canadian dollars and are rounded to the nearest million.